How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding PCSB Financial Corporation (NASDAQ:PCSB).
PCSB Financial Corporation (NASDAQ:PCSB) was in 10 hedge funds’ portfolios at the end of June. PCSB has seen an increase in activity from the world’s largest hedge funds of late. There were 9 hedge funds in our database with PCSB positions at the end of the previous quarter. Our calculations also showed that PCSB isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike other investors who track every movement of the 25 largest hedge funds, our long-short investment strategy relies on hedge fund buy/sell signals given by the 100 best performing hedge funds. Let’s take a look at the recent hedge fund action encompassing PCSB Financial Corporation (NASDAQ:PCSB).
What does smart money think about PCSB Financial Corporation (NASDAQ:PCSB)?
At Q2’s end, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 11% from the previous quarter. The graph below displays the number of hedge funds with bullish position in PCSB over the last 16 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Castine Capital Management held the most valuable stake in PCSB Financial Corporation (NASDAQ:PCSB), which was worth $11.2 million at the end of the second quarter. On the second spot was Royce & Associates which amassed $4.8 million worth of shares. Moreover, Prospector Partners, Renaissance Technologies, and EJF Capital were also bullish on PCSB Financial Corporation (NASDAQ:PCSB), allocating a large percentage of their portfolios to this stock.
Consequently, key money managers have jumped into PCSB Financial Corporation (NASDAQ:PCSB) headfirst. Citadel Investment Group, managed by Ken Griffin, created the biggest position in PCSB Financial Corporation (NASDAQ:PCSB). Citadel Investment Group had $0.2 million invested in the company at the end of the quarter. Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital also initiated a $0 million position during the quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as PCSB Financial Corporation (NASDAQ:PCSB) but similarly valued. We will take a look at Syros Pharmaceuticals, Inc. (NASDAQ:SYRS), HighPoint Resources Corporation (NYSE:HPR), HCI Group, Inc. (NYSE:HCI), and J.C. Penney Company, Inc. (NYSE:JCP). This group of stocks’ market valuations are closest to PCSB’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SYRS | 13 | 83094 | 5 |
| HPR | 8 | 48067 | -6 |
| HCI | 11 | 20029 | 2 |
| JCP | 12 | 33842 | -1 |
| Average | 11 | 46258 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $46 million. That figure was $28 million in PCSB’s case. Syros Pharmaceuticals, Inc. (NASDAQ:SYRS) is the most popular stock in this table. On the other hand HighPoint Resources Corporation (NYSE:HPR) is the least popular one with only 8 bullish hedge fund positions. PCSB Financial Corporation (NASDAQ:PCSB) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately PCSB wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PCSB investors were disappointed as the stock returned -1.1% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
